Ecuador notes up; Venezuela weaker as U.S. stops trading PDVSA bonds; Suzano prices tap

By Rebecca Melvin

New York, Jan. 29 – The Republic of Ecuador’s newly priced 10¾% notes traded up out of the chute to about 101.10 in the early going on Tuesday after the sovereign priced $1 billion of 10-year notes (rating: //B-) at par. But by late morning they faded back by about 0.75 point and were last 100¼ bid, 100.40 offered, according to a New York-based market source.

The notes “started the morning strong, but by the end of the morning they were weaker,” the source said, saying the paper fell back to 100.4.

The notes met with strong demand during marketing with order books in excess of $3 billion, and pricing was tightened by 25 basis points from initial talk for a yield of 11%. Nevertheless the Rule 144A and Regulation S deal marked a change from last year at this time when Ecuador priced $3 billion of 10-year senior notes at par to yield 7 7/8%. The sovereign did not price as many notes as it has funding needs for and may look to China or the International Monetary Fund for additional funds.

Also in the Latin America space, traders marked a sudden standstill in PDVSA after the United States announced new sanctions against the company on Monday that prohibit PSVSA’s transactions with people in the United States. The sanctions did not go so far as to sanction PDVSA from selling to U.S. refineries.

A U.S.-based trader of these bonds said he had no idea where the pricing is for PDVSA as the market waits for more clarification of the sanctions. But until further notice, he is not allowed to trade the notes, he said.

The standstill marked a change from last week when news of a power shift in Venezuela sent trading of PDVSA bonds spiking to volume of $150 million. That was up from the recent lows of Trace data volume in those bonds of $10 million to $20 million.

Meanwhile the Venezuela sovereign bonds were weaker on Tuesday after the sanctions news, but still higher than they were the week before last. News of Juan Guaido, the president of the National Assembly, swearing himself in as president last week spurred hopes that Venezuela will see regime change that will be better for Venezuela and better for the bonds, a trader said.

The Office of Foreign Assets Control added PDVSA to the specially designated national list, which includes people and entities that U.S. people cannot do business with.

“The chances of regime change are higher than they were a month ago and the market believes that anyone there who is not Maduro is better for Venezuela and better for the bonds,” the trader said.

But Nicolas Maduro, who has been in power as president since 2013, shows no indications that he might be willing to bow to domestic and international pressure and step down voluntarily.

“He is going to leave only by force,” the trader said.

Venezuela’s sovereign bonds lost about 0.5 point to 0.75 point on Tuesday, with the Venezuela 2027 bonds as well as the 2026 notes and 2022 notes seeing decent volume and trading between 32 and 34.

That level is still higher by about 10% to 15% from where they were prior to last week’s price pop.

The Venezuela and PDVSA bonds had been slowing in volume for much of the last year until two or three weeks ago when Guaido came on the scene, the trader said.

But “people are still afraid that that the sanctions could be extended to include Venezuela,” the trader said.

Latin America continues to draw the attention of market players with both sovereign and corporate bond activity in the last couple of weeks. Brazil’s Suzano Papel e Celulose SA priced on Tuesday a $750 million tap of its 6% senior notes due 2029 (rating: /BBB-/) to yield 5.465%, according to a company release.

The issuing entity is Suzano Austria GmbH, which is guaranteed by Suzano Papel e Celulose SA and Fibria Celulose SA, pulp and paper companies based in Brazil, and the notes were sold under Rule 144A and Regulation S.

Proceeds of the new notes will be used to repay debt. The original $1 billion of 6% notes due 2029 priced on Sept. 18.

Still on the calendar to price this week are Chile’s Latam Airlines Group SA’s planned dollar-denominated of notes (expected rating: //B+) and Mexico’s Credito Real SAB de CV Sofom ER planned dollar-denominated intermediate notes, that are coming at a smaller than originally talked deal size due to its cancelled tender for its 2023 notes, according to market sources.

Elsewhere, the bonds of Russia’s United Co. Rusal plc has had a muted response to coming off the U.S. sanctions list. Last April the OFAC put Rusal on the designated list and those bonds plunged by more than half to about 30. This week the bonds can be traded by Americans for the first time since then. But banks are still not making markets in the bonds and this is taken to mean that the bonds have gone even lower than the 25 to 30 level at which the bonds were trading at before this week’s news. The sanctions were reversed because Russian oligarch Oleg Deripaska agreed to sell his stake in Rusal and EN+.

Macau-based gaming and entertainment company Studio City Co. Ltd. and Studio City Finance Ltd. sold bonds on Tuesday that traded just above par with emerging markets market players involved. The company launched and priced an upsized $600 million issue of five-year senior notes (B2/B+) at par to yield 7¼% on Tuesday.

The issue size increased from $425 million.

The yield printed tight to the 7¼% to 7 3/8% final price talk. Earlier talk was in the 7½% area.

The Central & Eastern Europe region has been quiet so far this week with minimal activity in the Middle East and Africa as well. A deal on the calendar that is expected, namely Dubai Investments PJSC’s proposed dollar five-year sukuk did not price on Tuesday. The company started roadshow meetings for the Regulation S deal on Friday. But First Abu Dhabi Bank PJSC, which priced an upsized $850 million five-year sukuk, or Islamic bond on Jan. 15 for a profit rate of 3.911%, or a yield spread of mid-swaps plus 130 bps, was in the market on Tuesday pricing a $50 million zero-coupon 2049 note.

The deal was initially expected to be $750 million.

Paul Harris contributed to this article.

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